Pricing of products or services may have a huge impact on your business’s bottom line and its brand value. Indeed, price is the only element of the marketing mix that brings revenue and not costs. Even more, price is the element of the marketing mix that is the easiest and fastest to change 1.
The marketing mix refers to the set of actions, or tactics, that a company uses to promote its brand or product in the market. The 4Ps make up a typical marketing mix - Price, Product, Promotion and Place. ... Price: refers to the value that is put for a product. (https://economictimes.indiatimes.com/definition/marketing-mix)
Setting the price of a product is one of the most important marketing decisions a business owner has to make.
- Firstly, price influences how much of a product consumers or buyers purchase; and
- Secondly price influences whether selling the product will be profitable for your business.
Without doubt, business owners should therefore pay close attention when they do the pricing of products and services.
The challenge with the pricing of products and services
Most companies are faced with the problem of pricing products or services 2. For that reason, François Delvaux and Thomas Donck – Partners at Minds & More recently highlighted the following challenges that businesses face when they need to make pricing decisions:
You’re not certain what value your product or service create for your customers –
- Know your market. Explore the market that you are busy in – what are the problems that your customers want to solve?
- What are your competitors doing? How do they communicate with consumers in the market? Do they offer solutions to the consumer’s problems? What is the price they ask for their solution?
The market doesn’t understand the value that your product or service deliver –
- Are you communicating your marketing message to the right people? Make sure that the right message gets to the market segment that you’ve targeted.
- Is your message delivered in the right marketing channel? Do consumers in your market prefer to use social media channels or a more direct approach such as email marketing?
- Is your message easy to comprehend, informative and complete?
You don’t recognize what value your customers in different segments want –
- You need to know your customers better. Who they are; what they buy; and what they pay for it.
- You’ll learn a lot of your customers by talking to them. Doing an online survey with your customers will give you the correct answers and will help you to serve your customers segments profitable.
An ineffective pricing governance or a lack of policies to guide pricing in the field –
- Pricing governance has to do with managing and controlling the pricing of products and service formally.
- Managers must develop the operational components of governance. This includes pricing policies, -processes, and –metrics (Diana Zuzek, Beanstalk Revenue Management)
Effective price execution and Pricing controls –
- Now that you’ve your governance and pricing policies in place, execution and control need to take place.
- Avoid price leakage (when give unnecessary discounts, not charge for services, not apply target or list prices).
- Analyse your pricing strategies regularly to see what the shortcomings or opportunities are.
Alarmingly, business owners that are doing pricing decisions on an ad hoc basis or who do not have a pricing strategy are putting their businesses under unnecessary risks. After all, the correct pricing of your products and services will not only ensure sustainable profitability, but will also result in more and loyal customers.
Indeed, the price of a product or service is indicative of what the customer is willing to pay for the value she gets from it…
1 Ruzzier, M.K., Ruzzier, M. and Hisrich, R.D. 2013. Marketing for entrepreneurs and SMEs: A global perspective, Edward Elgar Publishing.
2 Bichler, M. 2001. The future of e-markets: multidimensional market mechanisms, Cambridge University Press.